Final answer:
A PAP may be cancelled for material misrepresentation, which occurs when false information is provided by the applicant, influencing the insurer's decision.
Step-by-step explanation:
One reason a Personal Auto Policy (PAP) may be cancelled by the insurer is due to material misrepresentation. This refers to the act of providing false or misleading information on the insurance application, which could have influenced the insurer's decision had they known the truth. Examples of material misrepresentation include lying about one's driving record, failing to disclose past accidents, or providing incorrect information about the primary use of the vehicle. Such acts give the insurance company valid grounds to cancel the policy. In insurance markets, these issues arise from the classifications of risk groups and are partly caused by information problems known as moral hazard and adverse selection.